Investors have yet to fully grasp how rising regulation, deleveraging and some pullback from global free trade will produce sluggish growth, while the current indebted Western world can expect to find it harder to transfer these burdens to future generations, according to famed PIMCO leading executive Bill Gross.

Gross, managing director of the bond fund giant – with almost $1.1 trillion of assets under management – said that investors have so far been shy of accepting the realities of a slow-growth era, sometimes known as the period of the “New Normal”.

Although emerging market economies do not face headwinds of heavy debt burdens, their own growth is not strong enough, and their financial systems too immature, to produce the consumer demand so far unfilled by Western economies, Gross said in a regular note on economic themes.

“It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem,” Gross said.

“We have arrived at a 'New Normal' where, despite the introduction of three billion new consumers over the past several decades in [India and China] and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it,” Gross said.

The picture painted of slow growth and high debt contrasts with that of say, the US in the 1990s, when the federal government actually achieved a budget surplus and benefited from stellar returns from technology stocks, holding out the promise that governments could achieve high growth and low inflation – the so-called New Economy. The credit and asset price bubbles of recent years have subsequently discredited the idea of a New Economy.

Investors who share Gross’s opinions are increasingly being urged to avoid sectors such as sovereign debt and growth-oriented stocks in preference for high dividend-paying equities issued by large, defensively positioned corporates.